BUSINESS &CAREERS Market

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The ripple effect

If gas prices surge as high as $1.60 a litre as some economists fear, it could derail Canada’s economy

Ontario drivers caught at the pump with an empty gas tankWednesday felt the pinch after an overnight gasoline pricespike swept across much of the province.

Having jumped by about 12 per cent so far this year, Ontario’sgas prices hovered at an average $1.36 per litre on Wednesday— and forecasters expect prices at Canadian pumps willcontinue on an upward trend as geopolitical uncertainty,

speculation and reduced refining capac-ity continue to drive up prices.

“I’ve been predicting the sky would fallsince last August,” said En-Pro Interna-tional Inc. analyst Roger McKnight,who predicted that Ontario gas priceswould rise to between $1.43 and $1.47per litre by April.

It’s a forecast that would see wallet-

busting gas bills for Canadian drivers,one sure to rouse fury among cash-strapped commuters.

But it’s also a prediction that, ifsustained, could derail the economy,according to BMO Nesbitt Burns’ senioreconomist Sal Guatieri.

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S&P/TSX COMPOSITE144.95 to 12,178.66 1.18%

CANADIAN DOLLAR0.61¢ U.S. to 100.36 $1 U.S. =$0.9964

DOW JONES INDUSTRIALS124.80 to 13,074.75 0.95%

OIL$2.54 U.S. a barrel to $101.47

Rona dismisses takeover talkQuebec-based home-improvement chain says it’snot up for sale, after interest from Lowe’s gives stockabig boost, B3

THURSDAY, APRIL 5, 2012 SECTION B

NIAMH SCALLAN STAFF REPORTER

GASOLINE continued on B2

If the recently launched INDX projectin Toronto’s financial district is anyindication of the state of the city’scondo market, then this year couldprove to be even more bullish than lastas the core continues to creep upward.

INDX is among some 27 new condoprojects that have launched just sinceJanuary across the GTA. That’s upfrom 17 during the first three monthsof 2011, according to market researchfirm Urbanation — and that turnedout to be a record year for the condoindustry across the GTA, far outpac-ing all predictions.

With developers still heady from lastyear’s 28,190 new sales, and 24,343starts, there appears to be no letup insight. INDX created a frenzy of in-terest during a VIP sales event lastweek.

City’s condo frenzyreaches new heights27 newprojectslaunchedjust sinceJanuary

SUSAN PIGG BUSINESS REPORTER

CONDOS continued on B2

The lawyer representing Royal Bankof Canada as it defends itself againstallegations of improper stock tradingsays the bank would not be willing toaccept a settlement deal.

“In serious matters people dialoguewith each other, but unequivocallyour position is that we didn’t do any-thing wrong here,” Arthur Hahn, apartner at Katten Muchin RosenmanLLP in Chicago said in an interviewWednesday.

RBC, Canada’s largest bank, has beenslapped with a lawsuit by the Com-modity Futures Trading Commissionalleging that a small group of bankexecutives operated a massive washtrading scheme, where various sub-sidiaries traded large blocks of sharesamong themselves at set times and atset prices, in order to reap Canadiantax credits.

RBC rejects any dealwith U.S. regulatorBank callswash-tradeallegations, ‘absurd,meritless’

MADHAVI ACHARYA-TOM YEW BUSINESS REPORTER

RBC continued on B2

Don’t be fooled by the civilizeddemeanour displayed by executives ofOntario’s biggest solar energy equip-ment makers, an industry conferencewas told Wednesday.

“We seem to be amicable as we’resitting here, but we’re trying to poisoneach other’s coffee as soon as we getout of the room,” Martin Pochtaruk ofHeliene Canada told the OntarioFeed-in Tariff Forum.

The audience laughed. His fellowpanellists — all competitors in thesolar energy equipment business —smiled grimly.

To a man (the renewable energybusiness remains a guy’s world),panellists agreed that making solarequipment in Ontario is a struggle.

Current manufacturing capacity inthe province for solar panels is about10 times annual demand.

Solar power companiescoping with slow burnProvince’sgreenenergyregimeleavesequipmentmakersstruggling

JOHN SPEARS BUSINESS REPORTER

SOLAR continued on B3

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B2⎮TORONTO STAR THURSDAY, APRIL 5, 2012 ON ON0

>>BUSINESS

Canadian authorities are steppingup oversight of the nation’s housingmarket even as lenders such asBank of Nova Scotia warn thattougher rules could threaten theeconomic recovery.

The country’s banking regulator,known as OSFI, said Wednesday itwill boost supervision of privatemortgage insurers while examining“emerging” risks to the financialsystem in several areas, includingresidential mortgages.

Policy-makers, including Finance

Minister Jim Flaherty, have saidthat parts of Canada’s housing mar-ket have become overvalued as con-sumers add to record debt levels,encouraged by some of the lowestmortgage rates in decades. Flahertysaid in his budget last week the gov-ernment will enhance supervisionof Canada Mortgage and HousingCorp., a federal agency that insuressome mortgages.

Scotiabank chief executive officerRichard Waugh warned about mak-ing reforms to CMHC that couldhave “unintended consequences”and cause the market to slow toomuch. “Canada’s model, which hasbeen so successful, is let the banksmanage and let the policy-makersset macroeconomic policy, mone-tary policy, and good strong reg-

ulatory supervision,” Waugh saidWednesday in an interview.

Bank of Canada governor MarkCarney said in an April 2 speechthat households relying on debt fi-nancing represents “the biggest do-mestic risk” to the economy. SomeCanadians would be vulnerable to asharp decline in housing prices, thecentral bank said in its latest Fi-nancial System Review.

Home resale prices rose 6.5 percent in January from a year earlier,

according to the Teranet-NationalBank Composite House Price In-dex. The S&P/Case-Shiller index ofproperty values in 20 U.S. cities fell3.8 per cent in January from a yearearlier after dropping 4.1per cent inDecember, a March 27 report fromthe group showed.

The country’s resale housing mar-ket is overvalued by 10 per cent to 15per cent and there is an oversupplyof new homes, Toronto-DominionBank economist Sonya Gulati saidin a March 22 report. “These ex-cesses should be gradually un-wound over 2013 and 2014, withhigher interest rates the impetusfor the adjustment,” she said.

The Ottawa-based Office of theSuperintendent of Financial Insti-tutions said Wednesday it will pro-

duce a report for Flaherty on gov-ernment guarantees on mortgageinsurance. An OSFI spokeswoman,Leonie Roux, said the report wouldapply to private insurance provid-ers such as Genworth MI CanadaInc. and not CMHC.

The federal government guaran-tees the full value of mortgage in-surance offered by CMHC. The gov-ernment guarantees 90 per cent ofinsurance offered by private-sectorcompanies.

“Elevated household debt levelsnot only make households vulnera-ble to adverse shocks but continuedlow interest rates could encourageeven higher household indebted-ness,” OSFI said in a planning docu-ment released on its websiteWednesday.

Canada boosts housing oversight Banking regulator totighten rules for privatemortgage insurersBLOOMBERG NEWS

Finance MinisterJim Flahertysays parts ofCanada’shousing marketare overvalued.

The Canadian RealEstate Association

William Johnston

The Canadian Real Estate Association(CREA) is pleased to announce theelection of William Johnston as aDirector-at-Large to the CREA Boardof Directors.

Bill has been a REALTOR® since1982 and is a Broker with Bosley RealEstate. He served as a Director withthe Toronto Real Estate Board (TREB)in 1999, 2002-2004 & 2006-2012. Billis the Past Vice-Chair of Discipline forthe Real Estate Council of Ontario;Past Chair of Government Relations,By-Laws, Finance, MLS®, ProfessionalStandards & Education Committeeswith TREB. He was twice awardedthe Real Estate Institute of Canada’sMorguard Literary Award. Bill wascalled to the Ontario Bar in 1982 andwas President of TREB in 2010-2011.

The Canadian Real Estate Associationis one of Canada’s largest singleindustry Associations, with morethan 100,000 REALTOR® membersacross Canada. Information aboutthe professional services provided byCanadian REALTORS® can be foundat howrealtorshelp.ca.

Some 600 realtors showed up,causing a more than hour-long waitto get cars back from valet parking.Almost 70 per cent of the 798 unitsare already sold out.

Despite concerns — even by feder-al Finance Minister Jim Flaherty —that Toronto’s condo market maybe headed for a fall, buyers appearto be turning a deaf ear. That’s be-cause fundamentals of the marketremain as solid as ever, developerssay: strong immigration to the GTA,low interest rates and a growingdesire to live close to work.

And you can’t get much closerthan the 54-storey INDX, a blockaway from First Canadian Place inthe Bay and Adelaide area. Thesleek tower, abutting the historicGraphic Arts Building, will feelmore like a hotel than condo if allgoes as planned with cocktaillounges, a golf putting ground andpoker room, as well as its own mov-ie theatre and shoeshine station.

“To characterize the market ascrazy or a bubble is not an accuratedescription of where we’re at in thiscity,” says Andrew Hoffman, presi-dent of CentreCourt Develop-ments, which has partnered withLifetime Developments on theunique project — a rare residentialtower steps from the banking dis-trict at less than half the price($250,000 to $900,000) of the near-by Trump International condounits.

“As long as interest rates are low,our economy is strong and we have

people who want to live close towork, I think the condo market willcontinue to be strong.”

INDX is among a flurry of projectsbeing rushed to market sooner thanusual, hoping to keep up momen-tum from last year’s record level ofsales and beat out competitors, es-pecially in the core where some 14projects have already launched andothers are about to go to market,says Urbanation’s Ben Myers.

They include Massey Tower byMOD Developments which willstretch 60 storeys into the sky overa historic beaux-arts style CIBCbank building on Yonge St. north ofQueen that has been vacant since1987.

Tridel is preparing to launch itsmuch-anticipated 75-storey TenYork condo near the waterfront.And a host of other condo projectsstill soon start transforming the feeland foot traffic along Yonge St., saysMyers.

Much of the demand is being driv-en by investors or young buyersbacked with down payments byparents, he adds.

“I don’t see the bubble everyone istalking about. We’ve seen no slow-down from investors,” says realtorRoy Bhandari, part of a four-personSotheby’s International team thatfocuses largely on pre-constructioncondo sales and sold 45 units inINDX within days of the projectbeing announced.

“If anything, people are more ea-ger right now. They still see (theToronto condo market) as a greatplace to put their money, especially

when you weigh it against otherinvestments like stocks and bonds.”

Most of the investors Sotheby’ssees are immigrants now living inCanada, looking to hold onto unitsfor at least two years and rent themout, even if the escalating costs andshrinking size of condos is makingit harder to break even on rents.

As what Hoffman calls the “livehard, play hard” crowd looks in-creasingly for downtown addresseswithin walking or subway distanceof work, demand for condos, to rent

or buy, is actually close to outstrip-ping supply, despite the condoboom, says Bhandari.

Downtown realtor Mark Savelsays he’s seeing more bidding warsfor prime downtown rental condos,even at $1,900 a month.

“There’s a sense that buying a con-do downtown is almost a recession-proof investment,” because de-mand to live downtown is so strongnow, says Savel.

“I don’t see why we can’t handleanother record year.”

‘Live hard, play hard’crowd fuels demandCONDOS from B1

CentreCourt Developments president Andrew Hoffman, left, and LifetimeDevelopments vice-president Brian Brown have partnered on the new54-storey INDX project near Adelaide and Bay Sts.

SUSAN PIGG/TORONTO STAR

The average GTA house price nowhovers at over half a million dollars, up10.5 per cent from March of last year.

Low interest rates and a shortage ofhomes for sale continue to propelprices skyward and fuel bidding warsthat have become virtually de rigueurin many Toronto neighbourhoods.

That combination of factors helpedpush prices to an average $504,117across the GTA and to almost$550,000 in the Toronto 416 regionsin March, up from $456,234 and$498,050 respectively a year ago, ac-cording to the Toronto Real EstateBoard analysis of almost 10,000 salesacross the region in March. Prices inthe 905 areas averaged $477,006, upfrom $428,155 last March.

The price escalations are showing nosigns of a letup, given that the springhouse-buying spree started early thisyear and has yet to hit its peak.

Even veteran realtors are shakingtheir heads as GTA home prices con-tinue a climb that has been unstop-pable over more than a decade, eventhrough the recent recession andmassive global economic uncertainty.

Inventory remains a problem andhas realtors concerned why so fewnew listings are hitting the market.

“The huge shortage of listings, espe-cially under $700,000, has made thisearly spring market crazy,” says To-ronto realtor Desmond Brown. “Andwith the threat of interest rates goingup, people are in a bit of a panic to buyand close before their 120-day lowmortgage rate commitments expire.”

New listings actually increased inMarch over a year ago, but aren’tkeeping up with demand, says JasonMercer, senior manager of marketanalysis for the Toronto Real EstateBoard.

HOME PRICES SURGESUSAN PIGG BUSINESS REPORTER

The subsidiaries are alleged tohave been located in Europe, To-ronto, the Bahamas and CaymanIslands.

The CFTC also alleges that RBCexecutives gave misleading andfalse statements when exchange of-ficials asked about the trades.

RBC has called the allegations “ab-surd” and “meritless.” On Tuesday,chief executive officer Gord Nixonweighed in, saying the bank will vig-orously defend itself from the “un-warranted” allegations.

Sources familiar with the pro-ceedings say that RBC was offered achance to settle and pay a cash pen-alty, but declined, saying it did noth-ing wrong.

“We have a strong case here andlook forward to presenting it to thejudge,” Bart Chilton, a commission-er with the CFTC, told the Star.

He declined to comment onwhether the commission offeredRBC a settlement deal.

The court documents, filed in NewYork on Monday, allege that RBC’saim was to hold certain securities togain Canadian tax credits, and thatit sold futures contracts on theshares to mitigate the risk of thestock prices fluctuating during thattime.

RBC says that it informed the reg-ulator and the exchange, OneCh-icago, as far back as 2005 that it was

making large block trades betweenvarious subsidiaries.

“We called the exchange and fullydetailed everything we were doingand we wanted to make sure this isOK. We had essentially a greenlight. We proceeded to do these ex-act trades as we described them, allthe way through 2010,” Hahn said.

“They now would like to take adifferent position. Our view is that’sfine. Change the rule, but don’tbring in enforcement action afterthe fact.”

According to the court docu-ments, there were two main typesof transactions. The RBC CanadianTransit group in Toronto sold de-rivatives known as narrow-basedindex futures to RBC Europe Ltd. inLondon. These offices also boughtand sold shares of the underlyingsecurities. Profits and losses be-tween the two offices were consoli-dated and the Canadian arm reapedthe tax credit.

The other trades involved RBCCaribbean in the Bahamas andCayman Islands selling single stockfutures contracts to RBC CapitalMarkets Arbitrage, with offices inNew York. These contracts weretimed to expire just after dividendswere collected to capture the taxbenefit.

The lawsuit alleges that thescheme was worth hundreds of mil-lions of dollars, though it does notgive an exact value.

RBC had ‘green light’on trades, lawyer saysRBC from B1

Guatieri said an increase to $1.60per litre could see Canada’s eco-nomic growth reduced by morethan a percentage point over thenear next year — a significantamount given that the country’scurrent growth rate hovers at 2.5per cent. And unemployment couldrise to 8 per cent, he said.

“It’s something we’re clearly con-cerned about. Its one of the biggerrisks in our economic outlook,”Guatieri said. “We’ll have to see howthe situation unfolds.”

The impact of rising gas prices isalready unfolding in farmers’ fields,manufacturing plants, retail shopsand households across Canada.

FARMSAs a cattle farmer near Sault Ste.Marie, Ont., Ron Bonnett knowsfirst-hand the effects of skyrocket-ing fuel costs on agriculture.

“If we can avoid starting a tractor,we avoid starting a tractor,” saidBonnett, president of the CanadianFederation of Agriculture.

Fuel prices increased by 123 percent between 2003 and 2010, ac-cording to a March 2012 Agricul-ture and Agri-Food Canada report.For every cent-per-litre increase,farmers’ annual machinery fuel billincreases by about $26 million.

Bonnett said farmers have begunto adopt fuel-saving techniques —such as “no-till planting,” reducing

the number of passes across thefield during planting season. Buttrucking goods in and out of farmsmust be taken into account, he said.

“Eventually, that’s going to have tocome out of the marketplace sowe’ll see increases in food prices,”Bonnett said.

RETAILERSSome businesses feel “blindsided”by rising fuel costs, which affectshipping and consumer behaviour,says Stephen O’Keefe, the RetailCouncil of Canada’s vice-presidentof operations. Others have plansthat mitigate temporary spikes.

O’Keefe said businesses have alsoseen falling profits as consumers,forced to spend more at the gaspump, reign in their spending.

“If we have to spend more gaso-line, it leaves less money to buyother things.”

CONSUMERSBut will they tighten their belts?

Benjamin Tal, CIBC World Mar-kets Inc. deputy chief economist,says consumers have not changedconsumption behaviour duringprevious gas price spikes.

For Guatieri, the major troubleslie in a weakened U.S. economy.

“When gas prices go up, the U.S.spends less, which results in slowergrowth in Canada. If we get above$1.60, that could have a materialnegative impact on the economyand raise unemployment,” he said.

Trade with struggling U.S.could take hit, says economistGASOLINE from B1